Obama rolls out $3.8 trillion budget

Putting his chips on manufacturing and new energy sources, President Barack Obama rolled out his new $3.8 trillion budget Monday, trying to balance the August debt accords against his own judgment that too much austerity, too fast will spell trouble for the economy — and his own reelection chances in November.

From Justice to Defense and Homeland Security, as many as six Cabinet-level departments or agencies will see their budgets shrink in compliance with the new appropriations caps. But Obama would also go outside the box, committing tens of billions of dollars to new mandatory spending initiatives and for the first time, tapping war savings to fund his domestic agenda.

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“We can’t cut back on those things that are important for us to grow,” the president told students in Northern Virginia, highlighting the budget’s new $8 billion plan to help community colleges partner with industry as training centers for a new generation of skilled workers. Within the Energy Department, he wants a $6 billion HomeStar rebate proposal to reward homeowners who retrofit their property. And elsewhere the budget includes a pair of $1 billion commitments to promote advanced electrical vehicles and develop a network of manufacturing innovation institutes.

Perhaps, the biggest single item is an ambitious $476 billion, six-year transportation package — a nearly 50 percent increase over current spending that is largely financed by plowing back $231 billion of savings attributed to scaling back U.S. military operations in Iraq and Afghanistan.

This novel scheme avoids any unpopular increase in federal gasoline taxes, just as Obama wants to minimize any increase for middle-class households, whose spending he needs for the economy. That leaves the wealthy as his primary target, and the president appears more aggressive in targeting dividend income as well as exclusions for employee retirement contributions.

Even so, the president is hard-pressed to make much headway on the deficit without taking on benefit programs like Medicare and Medicaid or accepting some increase in middle-class tax rates.

As it is, the extension of special middle-class protections under the alternative minimum tax costs him $1.9 trillion — almost as much as the additional $2.17 trillion attributed to his keeping the Bush-era tax cuts for middle- and working-class families, due to expire next year. Add these two decisions together, and it’s enough to eat up all of the $3.17 trillion in new deficit reduction that Obama musters in his blueprint.

The bottom line, then, is a fourth straight year of $1 trillion-plus deficits and only marginal improvement in 2013 when the shortfall will narrow to $901 billion — still a far cry from what Obama had promised when he took office in 2009.

Indeed, even if Obama were to win a second term and prevail on his entire tax agenda, the budget tables show that the deficit won’t fall back below 3 percent of GDP until 2018 — after he will have left the White House.

Republicans were scathing in their reaction. “Today we are witnessing one of the most spectacular fiscal cover-ups in American history,” said Alabama Sen. Jeff Sessions, ranking member on the Senate Budget Committee. House Budget Committee Chairman Paul Ryan (R-Wis.) dismissed the president’s efforts as a “recipe for a debt crisis and the decline of America.”

In response, a senior administration official told POLITICO that those who complain loudest should be cautious about what they ask for.

“You talk to any number of economists, and there is not a lot of clamor for the U.S. to slam on the brakes in 2012 or in 2013,” he said. “It would hurt not just our economy but also Europe. There will be a chorus of complaints, but if you really were to follow through on what is said, it would do more damage.

“I’ve been on the fiscal conservative side of these arguments. It’s easy to say ‘We should take our medicine now.’” But sometimes taking too much medicine, or the wrong kind, does more harm.”

However slow, the downward path to less than 3 percent of GDP is credible, the official argued. And in designing that path, he said, the White House looked for a formula where deficits would not suddenly spike up again in the future.

That said, it is an election year, and Obama plainly constructed his budget to light a spark after all the economic troubles of recent years.